The House of Representatives is expected to approve a new rule requiring the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) to incorporate the estimated macroeconomic effects of major legislation into their official scores.
This process, often referred to as “dynamic scoring,” is likely to inject further controversy and uncertainty into the budget process because there is no generally accepted consensus on how it should be done.
The rule will apply to mandatory spending and revenue legislation but not to discretionary spending. For the most part, major legislation is defined as any bill that would change spending, revenue or deficits by 0.25 percent of the economy (roughly $43 billion in 2014) for any year covered by the budget resolution.
Traditional scoring already accounts for how changes in policy might cause households and businesses to change their behavior. In other words, it is not “static.” However, it assumes that the total level of economic activity stays constant.
Dynamic scoring would take the next step by attempting to show how legislation would affect the overall economy by changing factors such as labor supply and investment, which in turn would affect the federal budget.
While the goal of a more economically comprehensive score is desirable, some practical hurdles will make implementation difficult.
The most fundamental hurdle will be for CBO and JCT to agree on a single approach to dynamic scoring. The two agencies already try to take macroeconomic impacts into account in some estimates but they use a number of models that require different assumptions about future monetary and policy reactions. These models tend to produce significantly different results.
That’s why macroeconomic analysis is most useful when the various assumptions and models are used to provide a range of possible outcomes, as is currently done. Attempting to translate all of this into a single score, however, will require CBO and JCT to make a single set of assumptions that could easily be challenged for providing a false sense of precision about a bill’s potential impact on the economy.
Elected officials should be particularly wary of dynamic scoring models that assume deficits will be eliminated by future policy actions. Such assumptions would allow deficit-inducing legislation to appear more benign even though future offsets may never happen.
House Rule on Dynamic Scoring
Congressional Budget Post Gains New Power (Politico)
A Discussion on Dynamic Scoring (Committee for a Responsible Federal Budget)
A Republican Ruse to Make Tax Cuts Look Good (N.Y. Times)
Dynamic Deja Vu on Tax Policy (Concord Coalition)